Political, trade uncertainty undercuts US business optimism: Fed

— U.S. economic activity continued to expand at least modestly in recent weeks but political and trade uncertainty is undercutting optimism, the Federal Reserve said Wednesday.

Companies also are concerned about volatility in financial markets and rising interest rates, according to the Fed’s “beige book” survey of the economy.

And businesses nationwide continue to struggle to find and retain workers, despite rising wages, with some having to forgo work due to lack of employees, the report said.

“Outlooks generally remained positive,” the Fed said, but in many of the 12 Fed districts, “contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.”

Nearly every region mentioned the impact of trade disputes and tariffs on manufacturing, retailers and other sectors.

In some cases the impact was positive but expected to be temporary.

In Richmond, which includes the port of Baltimore, “ports saw robust activity in recent weeks,” which they attributed largely “to orders being made early to avoid possible tariff hikes.” However, “they expected trade to soften in the next few months.”

One Virginia company even had Chinese goods shipped through the west coast ports to beat the tariffs, the report said.

President Donald Trump’s aggressive trade policy has imposed steep tariffs on steel and aluminum as well as $250 billion in goods imported from China annually.

The tariffs have raised costs for firms throughout the economy and in turn have drawn retaliation on U.S. goods, felt most keenly by soy farmers.

The U.S. government shutdown, which is in its fourth week and now the longest ever, also spurred uncertainty, especially in financial firms.

The Cleveland Fed said “volatility in financial markets and political uncertainty have had a negative effect on consumer and business confidence and cloud the outlook for loan demand in the coming quarter.”

And Dallas said manufacturers’ sentiment “turned slightly negative in December,” due to several issues including declining oil prices, labor constraints and political uncertainty.

The shutdown was in its early stages when the report was prepared, so it may have been too early to capture the effects.

Meanwhile, the tight labor markets continue to hamper firms from expanding, while wages are rising nationwide and at all skill levels, including entry-level jobs as new minimum wage laws took effect. But so far, those increases have been moderate, the Fed said.